Renewable Energy Law Alert: California Public Utilities Commission Proposes Expanded Use of Feed-In Tariffs
3/31/2009

The California Public Utilities Commission has begun consideration of a proposal from its Energy Division staff to expand the current feed-in tariff program to include renewable generation projects up to 10 MW. The feed-in tariff would require California's three largest investor-owned utilities—Pacific Gas and Electric, Southern California Edison, and San Diego Gas and Electric—to purchase energy from these renewable generation projects at a set price and under a standard form contract. Pursuant to a ruling issued on March 27, 2009 by Administrative Law Judge Mattson, comments on the Energy Division staff proposal are due April 10, with reply comments due seven days later. Parties may also file motions requesting that evidentiary hearings be held on the proposal. After receiving comments and conducting any necessary hearings, ALJ Mattson anticipates preparing a proposed decision on the new feed-in tariffs.

California's Efforts to Develop Feed-In Tariffs

In 2006, California adopted legislation requiring feed-in tariffs for renewable generation projects up to 1.5 MW that were owned and operated by public water or wastewater facilities. The Commission's decision implementing that legislation, Decision 07-07-027, expanded the reach of those tariffs to generation owned or operated by other customers and sold to PG&E and SCE. In mid-2008, the Commission began considering whether those tariffs should be expanded to include projects up to 20 MW. The Energy Division's proposal issued last Friday sets out recommendations for further expansion of California's feed-in tariffs.

Energy Division Staff Proposal

Under the staff's current proposal, the feed-in tariff would apply to all generation meeting California's Renewable Portfolio Standard eligibility requirements, but with a "focus on technologies that possess sufficient potential and scale to address state renewable and climate change goals within the 2020 timeframe." Project size would be limited to 10 MW or less, and the projects must be located within the California Independent System Operator control area. Overall, the program would be limited to a 1,000 MW overall cap, allocated across the three utilities according to the share of coincident peak demand. Projects meeting the tariff requirements would be permitted to sign a standard form contract, which would not require Commission approval.

Energy Division staff also proposes that for projects between 10 and 20 MW, PG&E, SCE, and SDG&E would also offer a standard form contract, but in contrast to the smaller projects, the utilities would have discretion whether to sign those contracts. Upon execution, those contracts would require Commission approval, but under a lower standard of review that would allow the contracts to become effective after 30 days unless the Commission acts.

Projects within the applicable 1.5 through 20 MW range to which these standard contracts would apply would not be limited to signing the standard contracts, but would also be allowed to participate in the competitive solicitation process or bilateral negotiations with the utility, should they choose to do so.

The Energy Division proposal does not propose a price for the standard contract. Instead, the proposal suggests that price should be determined by a future phase of the proceeding, to allow the Commission additional time to evaluate the appropriate price level. Under the current feed-in tariffs for projects 1.5 MW or smaller, projects are paid the "market price referent"—which is the Commission's calculation of the market price for electricity from a combined-cycle natural gas powerplant.

Energy Division staff also proposes that the feed-in tariff require that all energy production be sold to the buyer. Under the Commission's prior decision implementing feed-in tariffs for projects up to 1.5 MW, the Commission had authorized two options: full export (all energy produced is sold to the buyer) or net excess sales, where the projects are used to serve on-site load first and only the excess is sold to the utility. Projects will also be required to post development security of $20 per kilowatt at the time of signing the contract, and must achieve commercial operation within 18 months.

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